Econ Test 2 Ch. 9

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A market situation where a small number of sellers compose the entire industry is called:


Interdependence among firms is characteristic of:

oligopoly markets

Which of the following statements characterize an oligopoly market?

Firms are aware that their own economic behavior will influence the decisions of rivals.

Mutual interdependence means that:

firms must anticipate the possible reaction of rivals to their own economic behavior.

An example of an oligopoly is:

the tobacco industry

The interdependence among oligopoly firms arises because:

a small number of firms produce a large share of industry output.

A profit-maximizing oligopolist:

none of the above

Three airlines account for most of the air traffic in and out of a local city. If the three airlines joined together in setting fares and air travel schedules, economists would say that they were acting as:

a cartel, as the three airlines together would attempt to coordinate policies in the local market to jointly maximize profits.

Equilibrium price and quantity for a collusive oligopoly are determined according to the intersection of the ____ curve and the horizontal sum of the short-run ____ curves for the oligopolists.

marginal revenue; marginal cost

If an oligopolist reduces the price of its product relative to its competitors:

some customers will switch from rival firms to buy from him.

Cartels are thought to be inherently unstable because:

each cartel member can privately profit from increasing production beyond agreed-upon levels.

A successful cartel ____ supply so that member firms earn ____ profits.

restricts; monopoly

Cartel agreements are more likely to succeed if:

there are few firms in the industry producing identical products.v

In a typical cartel agreement, the cartel maximizes profit when it:

behaves as a monopolist

Firms may be tempted to cheat on cartel agreements by:

lowering price and increasing output

In a collusive oligopoly, joint profits are maximized when a price leader establishes price based on:

the market demand for the product and the marginal costs of the various firms.

____ make(s) it difficult for an oligopoly to maintain a cooperative outcome with low production, high prices, and monopoly profits.

-Incentives to cheat
-Government antitrust policy and regulation

As the number of firms in an oligopoly ____, the oligopoly becomes more ____.

-decrease; like a monopoly
- increase; like perfect competition

For a time, either R. J. Reynolds or Phillip Morris raised prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry later raised their prices by the same amount. Economists call this:

price leadership

Under conditions of oligopoly markets, firms generally don't like to compete based on price. Why?

Because competing on the basis of price can set off a price war among competitors and significantly reduce profits to the firm.

An oligopoly firm is generally characterized by:

-its consideration of rivals' reactions.
-the possibility of realizing economic profits in the long run.

Which of the following industries most closely approximates the oligopoly model?

automobile manufacturing

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?


Which of the following industries most closely approximates the conditions of the oligopoly model?

breakfast cereals

In oligopolistic markets:

firms are large relative to the size of the market.

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